Ladies and gentlemen, welcome to the Michelin conference call. I now hand over to Mr. Yves Chapot, General Manager and Group CFO. Gentlemen, please go ahead.
Hello, good evening, everyone. I'm very pleased to welcome you for this quarterly sales disclosure. I will start directly by the key message. Although we have been operating in a weak market overall, our sales were up by 7.4% during the quarter, thanks particularly to our premium positioning. During our last publication in February, we have announced that we are anticipating lower sell-in markets in Q1 2023, as the first quarter of 2022 was characterized by strong inflation and supply disruptions, exacerbated at the end of the quarter by the conflict in Ukraine. On the other hand, in 2023, as supply chain has improved, we have observed that distributors tend to reduce inventory, and overall sell-in market tendency were below sell-out markets.
The passenger car and light truck markets are down by 3%, impacted by replacement demand in Europe and North America, when original equipment markets were slightly positive, but still well below the 2019 or even 2017 level. Truck tire markets outside China declined by 2% with robust original equipment sales, which have more than offset by slowing RT demand, mainly in Europe and North America. Specialty markets remain strong, especially in mining and aircraft, while constructions and two-wheels have been showing a weaker tendency. Non-tire markets are expanding in general industry, industrial, mining, energy, fleet services.
Our consolidated sales rose by 7.4%, reaching EUR 7 billion over the period, with a 6.6% decline in volume, stemming primarily from weaker passenger car and truck sell-in demand, of which approximately 25% is related to Eastern Europe. 12.3% price-mix effect reflecting the group product quality and performance. Our growth in high value segment and our strong mining tire sales have more than offset the unfavorable original equipment replacement mix. I would like to also to highlight our 15% growth in non-tire segments, both in high-tech materials and fleet services, and then a slight gain in currency, mainly due to the US dollar. Finally, we confirm our guidance for 2023, both for our segment operating income and our free cash flow before merger and acquisition.
You can see in this chart that Q1 market has been trading rather in the lower range of our forecast that we shared last February. Passenger car and light truck market were down by 3% over the quarter with OE slightly positive, + 1%. European and North American original equipment markets respectively grew by 14% and 8%, thanks to OEMs' overall supply chain improvement. We must acknowledge this favorable comparison with the Q1 2022. On contrary, in China, original equipment has been decreased by 14% as new vehicle inventory were high at the end of 2022, and new car incentives have been reduced by the authorities. On the replacement side, for passenger car and light truck, markets were overall down by 4% with a complete geographical opposite picture than for OE.
China market grew by 3%, led by the upturn in mobility after several lockdowns in 2022. European and North American market respectively decreased by 14% and 4% as dealers are looking to reduce inventory in a more favorable supply environment. Truck and bus market, excluding China, has contracted by 2% with the robust OE market and shy replacement market. Original equipment is very strong, demand is very strong in Europe and North America at +10% and +9%, with strong truck purchase ahead of the introduction of several new emission standards in the years to come. Non-tire market expansion in main segment, general, industrial, mining, energy and fleet services.
For the replacement market in truck, they were characterized by a contraction both in Europe and North America, as both fleet and dealers were looking to reduce their inventories. On the specialty market side, which is not on this slide, agriculture markets are still trending upwards, supported by original equipment demand, and with, let's say, the support of persistently high commodity prices, when the construction market, on the other hand, is being affected by the slowdown in home building, impacted by rising interest rates. Mining demand, and particularly in iron ore, remain high, with the sustained growth of mining operations and ongoing inventory rebuilding. Two-wheel tires, the demand is slowing from high prior comparative year, primarily due to extensive inventory build-up, particularly in the bicycle tire segments.
The aircraft tire show a strong rising demand, still of favorable comparative, but lift by a return to pre-COVID passenger traffic particularly in domestic flight in China, but also in international flight overall. Looking at our first quarter of sales mix, you can observe that we have a limited scope effect, and that the main effects are primarily the volumes. The decline was 6.6%, with a particularly unfavorable comparison with the first quarter of 2022, which show heavy inventory rebuilding. The decline is also stemmed from the general climate of economic uncertainty in which the group is maintaining its strategy focused on creating value by targeting the high-value segments.
The termination of our operation in Russia as of March 15, 2022 accounted for around 25% of our total volume decline during the first quarter of 2023. Price mix is up, and that probably the main element by 12.3%, including a very strong price effect of 11.2%, which reflects both the full impact of 2022 price increase, a slight price increase early 2023, and the adjustment prices related to our index businesses. Our mix effect is contributing positively 1.1%. It reflects the sustained growth in the proportion of 18-inch and larger tire in automotive segment sales and higher mining tire sales. These favorable factors were partially offset by an unfavorable shift in the OE replacement business mix, practically in all the business segments.
Last, most important for in my eyes is the fact that 15% growth of non-tire sales translate in a 0.7 point of group growth in sales, reflecting the robust gains in the Fenner operation and the MICHELIN Connected Mobility businesses. Last, the currency effect accounts for EUR 54 million or 0.8%. If you look by segment, you see that the sales in the automotive segment rose by 6.2%, reaching nearly EUR 3.5 billion for the quarter. The volume declined by 6.7% over the period in markets that were overall down by 3%. OE volumes sold healthily during the quarter as the upturn in business, particularly in Europe, offset the slowdown in China caused by the cutback in government incentives and high automakers inventory.
The replacement demand declined, particularly in Europe, where it was hurt by the economic environment and a certain amount of consumer hesitation. More than a third of the decrease in volume is stemmed from the termination of our operation in Russia, where the group exposure was greater in the automotive segment. The segment sales were boosted by the price increase introduced in the replacement market throughout 2022 and in January 2023 to offset inflation factors and the application of price indexation clauses in the original equipment segment. We have also a very positive mix effect, which has been partially offset by the OE/RT mix. On the road transportation segment, so, our sales grew by 1.3%, as I said, markets, except China were down by 2%.
The volume contracted by 8.9%, reflecting the decreased freight demand as supply chain returned to a normal pace and our ongoing deployment of our strategy focusing on the division highest value market segment. The OE business continued to expand over the quarter, supported by some vehicle pre-buy ahead of the introduction of new environmental standards in the diverse regions. The mix in these segments were particularly negatively impacted by the OE and RT mix as original equipment demand were more buoyant than the replacement demand. Regarding the specialty business, the growth was 16.4% with volume down by 3.7%.
As I said earlier, this segment was strongly driven by the growth in mining and in aircraft tires, when on the other hand, the beyond road and two-wheeled businesses were impacted by particularly the contraction of the construction and the two-wheeled businesses. Before moving to the full year guidance, I would like to remind you several point. Michelin is overall exposed to a wide variety of underlying businesses and geographical segments. Our exposure to the original equipment automotive is limited to 10% of our sales. When consumers driven segments such replacement markets for two wheels or four wheels vehicles represent 42%. Transportation and fleet services amount for 26% with the cyclicality of the truck business is amortized by the people transportation segment and fleet services.
The specialties represent 18% of our sales with a large diversity of activities such agriculture, construction, on-site logistics, defense mobility, material handling. Our high-tech material business represents 4% of our sales. It's important to look at the group through these lenses, and also to look at our geographical footprint between the Americas, Europe and Africa and the Middle East and Asia. To draw your attention on the completion of an important deal for our MICHELIN Connected Fleet activity with the closing of Crédit Agricole joining Michelin both as a financial partner and a shareholder in Watèa. Watèa by Michelin is aiming to facilitate light commercial vehicle fleet decarbonization by solving the pain points experienced by the fleet in this transition.
This business has been incubated within the Michelin Innovation Lab for the past two years, this is typically, in our view, an example of the group capability to create value by leveraging the group assets and also joining force with a strategic partner. We are very pleased to welcome Crédit Agricole as a shareholder and partner in Watèa. Another example is related to the high-tech material segment, where we are also demonstrating our ability to create value by leveraging Michelin research and development and innovation capabilities and partnering with other companies. Symbio, in which we invested, we started to invest in 2014, has benefited from Michelin research to develop state-of-the-art fuel cells for the light and heavy commercial vehicles.
With our association with Faurecia, we have boosted the company, the company will be able to open its first fuel cell gigafactory in Saint-Fons in France, in the south of Lyon. We should be able to further accelerate this course with the entrance of Stellantis equity investments in Symbio. In both case, Watèa and Symbio, I believe that Michelin shows its ability to create and crystallize value for its shareholders. Moving to the guidance, we have not fundamentally changed the market scenario in the main three market segments. As we mentioned earlier, 2022 seasonality was a little bit abnormal by some aspect, when there was a period where supply was still very painful.
There was a lot of inflators, which was mainly the story of the first half or the first nine months of 2022. Of course, 2023 will have to be look in comparison with 2022. For passenger car and light truck, we believe the market should overall land between -2% and +2%. Truck segment should be in the same range with also a contrasted profile between original equipment and replacement. We also maintain our growth range for the specialty businesses between -1% and +3%. Our guidance is unchanged with the segment operating income at a constant foreign exchange rates above EUR 3.2 billion, and a free cash flow excluding M&A above EUR 1.6 billion.
We expect our volumes to trend between -4% and flat for 2023. Cost inflators should range between EUR 400 million-EUR 900 million. As of today, we should land maybe close to the lower part of the range. Nevertheless, the volatility of energy prices, particularly in Europe since February 2022, lead us to be prudent. Other inflators such raw material, transportation should improve during the second half of the year. When we expect some inflator, such as labor cost, and with the potential risk of energy, to remain, energy will nevertheless remain above historical trends. Our target is still to generate a positive economic equation, so between price-mix and inflators. Last, we have not changed our CapEx anticipation for the full year.
That will be all for my presentation, and I'm here to answer your questions.
Ladies and gentlemen, if you wish to ask a question, please press star one on your phone keypad. Please ask your question in English. The first question is from Giulio Pescatore, from BNP Paribas Exane. Please go ahead.
Hi, thanks for taking my question. The first one on the guidance, you clearly adjusted the inflation target for this year, but you haven't adjusted the operating profit target, and you still expect net price-mix to be slightly above the inflator. Are you anticipating some pressure on pricing? Is that how we should read the changes in the guidance? The second question on effects, can you just help us frame how much do you expect effects to be a headwind as we progress towards the year, based on today's expectations obviously? Thank you.
First, I correct your question. We did not change the guidance. We changed some elements of the circumstances around the guidance, but we do not change the guidance. Traditionally, at the end of Q1, we think that it's not, we should not change the guidance because it's very early during the year. The seasonality of the business is slightly stronger during the end of the summer and the fall, so it's far too early to modify the guidance. We are not expecting any, let's say, across the board price change. Of course, we have our index business that will be updated according to the evolution of the index that we have contractualized with our customers. No change at this stage of the year.
First, because it's too early. Second, we have no fundamental elements to modify our guidance.
Understood. Can I just follow up on that? Probably you are lowering the inflation headwind, but you're still saying the net price-mix versus inflators will be only slightly positive, right? By nature of that, you are expecting today a lower than previously expected price-mix, which is, I guess, a reflection of lower cost. Is that the right way to think about it?
We believe that we should have a strong we have generated already more than 11% of price effect during the first quarter. Of course, the comparison along the year will modify this effect. Our last price increase was in January 1st. Mechanically, if we do not change the price at the end of the year, we should not have any more price effect. On the other hand, we'll have the mix effect, which is positive, although the original equipment and replacement mix is slightly negative. That's how you should read it. Regarding the currency effect, which was positive in Q1. I don't have a crystal ball about regarding the currencies.
It should normally turn negative as the evolution of the currency, if the currency stay for the full year at the level, they are today.
Very clear. Thank you.
Our guidance, I remind you, Giulio, is for segment operating income, is before FX.
Yes. Yes. That's why I was asking. Thank you.
The next question is from Pierre-Yves Quemener from Stifel. Please go ahead.
Yes. Good evening. Pierre-Yves with Stifel. Good evening, Yves and team. A couple of questions. I heard that Michelin could in some regions and some reference have started to slightly scale back the pricing. I'm not aware of that, but I would be happy to have a clarification at this stage. Have you started anywhere in any segment or any region to start and scale back on the pricing?
As a follow-up, I would say, I would ask you that, do you think that the mix should remain positive all through the year, and that the overall price-mix could land somewhere between 3.5%-4% as a consequence of what has been done last year and the slight increase that have been made in early January, if I remember correctly? Last question, if I may, would be on volumes, which would be, in my view, the make or break year for 2023, they have been down significantly for some quarters. Do you expect any pickup in H2?
Into the second quarter, would you say that the first indication are pointing for a slightly positive volumes or volumes should still be trending downwards or be less than in the first quarter? Thank you.
On the prices, our price effect on Q1 was above 11%. We cannot, I don't know how someone can find that we have started to scale back prices. It's probably true that, as we are going to come to, let's say, a more normative environment from the inflation standpoint, we are going to manage our price as we did, let's say, before 2020. We rarely adjust price either up or down, on a more targeted or, let's say, surgical manner, in order to look at our competitivity in the different segments. There will be no price, let's say, across the board, price scale back re-dos.
The full year, so it's a very strange year with probably, as inflation is stabilizing, we have very strong price effect on Q1, and then it should gradually go down along the year. The landing, you mentioned a figure which should not be too far from a price effect around 3%-4% for the full year. But honestly, it's very early to anticipate that. Regarding volumes, when we communicate our full year 2022 results, we want the fact that 2023 will start with a negative first quarter because first, in 2022 till, let's say, end of February, we still have or mid-March, we still have sales in Russia
We stopped our operation in Russia 15 of March 2022, on the minus 6.6%, it accounts for one quarter. Second, we knew that in 2022, distributors have been running to get inventories as the overall supply chain was not very stable, was still very hectic. As the supply has been, let's say, coming back to a more standard level, when we look, for example, at the timing, the delay to transport the containers from Asia to Europe or from Europe to North America, it has nearly come back to pre-COVID-19 level. We knew that at with this circumstance, dealers will probably look at reducing the inventories.
On top of that, in some region, like in Europe, there was probably a little bit too much winter tire in inventory at the end of the season. That was practically anticipated. When we look at the future sales quarter by quarter, of course, you will have favorable or unfavorable effect. Favorable effect will be in Q2, let's say for probably two-third of Q2 in 2022. Most of tier one cities in China were locked down. The unfavorable effect is that we have, let's say, a rebound in our mining sales, from July onward last year, when on the first half of the year we still compare to weaker sales in mining. For the time being, our landing, as we said, is between -4% and 0%.
It should shoot in the middle. You will probably, it can give you, probably some months with a slight growth, some months at nearly zero growth. That's probably all what I can share with you at this stage of the year.
Thank you, Yves.
The next question is from Martino De Ambroggi from Equita. Please go ahead.
Thank you. Good evening, everybody, and good evening, Yves. I'm sorry to bother you on on the previous question, but just to summarize, if I understood correctly, you are revising downwards the inflation cost by EUR 200 million-EUR 300 million. You are not reducing prices, if not for tactical adjustments. If you are not revising upwards the guidance, I clearly understand your cautious approach, but is it maybe entirely due to the negative Forex effect or just to summarize what you provided us in the previous questions?
As I said, the segment operating guidance is before Forex effect. Of course, there will be some negative Forex effect as we expect, if particularly if the Euro dollar stay at the current level, there will be a negative Forex effect ahead of us. Nevertheless, coming back to the segment operating income before Forex effect, we have slightly revised our inflators down. Don't forget that, since basically end of 2021, the early 2022, the energy prices have been extremely volatile. We are hedging part of our purchase, but we can be exposed to let's say a spike in energy prices as we have seen in August, September 2022. That's where land our prudence.
Of course, as I said to your predecessor, we have only a three months in behind us. Traditionally, we do not change, except if there was an exceptional event. We do not change our guidance at this stage of the year. We prefer to wait and to have the full picture of the first half of the year and eventually adjust our guidance in July if we have a good reason to do so.
Thank you. The second question is on networking capital. What is your underlying assumption in your EUR 1.6 billion free cash flow guidance, and how it is going in after Q1? The last question is on the underperformance in the car sector volumes. Because even if we adjusted for a weak Eastern European countries contribution, you are still underperforming by a couple of percentage point the reference market. What are the reasons for such a performance?
Regarding the working capital and the free cash flow, we don't communicate PNL and cash flow statement quarterly. What I can tell you is that the effect that we share with you at the end of 2022, you know.
Ladies and gentlemen, please hold the line. The conference will resume shortly. Please hold the line. Hello, the line is now open. Hello, the line is now open. Hello, the line is now open. Hello, this is the operator. Please hold the line. The conference call will resume shortly.
Hello, do you hear us?
Yes, this is the operator.
Yes, I hear you.
Yes.
Okay. We have an issue with our first line. I have switched to another line. I don't know when we were cut.
I was trying to answer to the networking capital question.
Okay. as I said, The effect that we share with you at the end of 2022 has been confirmed by our, the free cash flow that we have generated in the first quarter. The shift of around EUR 300 million from Q4 to Q1 has been actually verified in our figures.
Thank you. The underperformance in the car sector volumes?
Yeah. Sorry. I did not understand that you were cut for the full, for my whole answer. Well, as I said, in the passenger car entire segment, the effect of Russia accounts for one-third of the volume effect. It was 25% for one quarter for the whole group. It's one-third for the first segment. Regarding the volumes, I was commenting that we have also decided to focus on high value segments. Our sales in 18-inch and above represented 58% of our Michelin original equipment and replacement sales for the first quarter. 5 points above the first quarter of 2022.
At the same time, we must acknowledge that this segment, like, for FR2 as well, has been impacted by a negative OE replacement market effect.
Thank you.
The next question is from José Asumendi, from JP Morgan. Please go ahead.
Thank you very much. José, JP Morgan. Hello, Yves.
Hello.
Three quick questions, please. The first one, can you maybe comment a little bit around volumes for the second quarter on a group level? Do you think there's a chance that these volumes will turn positive on a year-on-year basis? That's a bit more short term. Medium term questions, two of them, please. Can you comment which cost inflation categories led you to reduce the negative impact guidance for the year? Which ones surprised you a little bit more positive? Which ones led you to change the guidance in that sense? As you look through the year, I'd love to understand a bit better. I'm sure you're managing levels of activity across the different plants in Europe or in the U.S.
Can you just give us some examples of some of the actions or activities you've been doing to maybe, you know, lower the level of activity to contain costs in a, in a relatively negative volume environment in the first quarter? Thank you. Hopefully, you heard me. Are you still there?
My apologies. The conference will resume shortly.
Do you hear me?
Yeah, we can.
Okay. Okay. Coming back to volume on Q2, we expect the volume to be either flat or slightly positive during the quarter. With probably a different geographical pattern than on the first quarter. We are obviously expecting a rebound versus 2022 in China. Probably still because in 2022, there was still some, let's say, inventory rebuilding and maybe some purchase anticipation due to price increase from distribution in Europe and North America. Probably a little bit more shy demand in North America and Europe. Moving to your second question related to cost inflation categories.
In fact, the two area where we are seeing cost inflators easing is transportation, and particularly maritime shipping and raw materials. Looking at the main material that we are purchasing, such natural rubber, synthetic rubber or butadiene, we are seeing effectively a price easing versus what we have seen last year. On the other end, if you look overall versus pre-COVID-19, so if we compare the raw material costs versus 2019, they are still significantly above 2019. Your last question, I'm sorry, because there was issues with the phone. I did not catch it up completely.
I was trying to ask around, how you're managing the levels of activity across the plants in Europe and North America in a relatively, you know, I wouldn't say challenging, but you know, not fantastic growth volume environment. How are you managing levels of activity to be able to, you know, reduce the fixed costs in the first half of the year? Thank you.
We are managing. We are sticking to our local-to-local sourcing strategy. And of course, we are adapting the level of activity to the demand in the various regions. Sometimes, we are canceling the shift during the weekends. First, we try also to be prudent in our own inventory. And we are adopting, let's say your structural local measures depending on the different context. But for your information, our level of activity, even in Q1 2023, was above the level of activity we had in our factory during the last quarter of 2022.
Thank you very much. Thank you.
The next question is from Sanjay Bhagwani from Citi. Please go ahead.
Hi. Thank you very much for taking my question as well. I've got three questions as well. My first one is on the follow-up to José's question on Q2 volumes. If I understood it correctly, Q2 volumes, you see it as flattish or slightly positive. I understood it correctly that the China is where you see good momentum. On the Europe and the U.S., what do you see? Because Q1 right now is, for example, impacted by East Europe, as you mentioned, and also by destocking. Are you seeing this destocking trend continuing into Q2 or slowing down? Yeah, if you could provide some more color on the volume trend for Europe and North America on Q2. That is my first question.
Okay. Yes. We believe that there will be still some destocking. In North America, for example, we know that dealers have been heavily loaded with the Asian imports, which have where there was a huge inflows since the summer of 2022. We believe that there'll still be some destocking. At the same time, we know that the original equipment market should be probably and of course the different business segments more dynamic than the replacement market.
Thank you. That's very helpful. Europe also, you basically see the benefits from, for example, in Q2 last year, you did not have the East Europe in com, so that's also the tailwind, right?
Yes. Yes, you are right.
Thank you. My second question is on free cash flow on H1. I think you mentioned that there's already a receivables recovery of some around EUR 300 million in Q1. Is it fair to say that the free cash flow in H1 could be actually better than the normal seasonally free cash flow, given that this EUR 300 million is a tailwind? I think you mentioned about last year, there's somewhere around EUR 1 billion of cash flow brokerage because of the higher cost of inventory. If you could provide some color on free cash flow in H1.
You will see in the exhibit of the presentation, the traditionally, at the end of H1, we are posting, slightly negative free cash flow. I think the average between 2015 and 2022 was, minus, EUR -1, between EUR -100, EUR -200. Slightly probably inflated by, the abnormal, free cash flow in, 2021 and 2022. Therefore, we can expect the free cash flow of the first, the first half to be, somewhere, let's say null or zero, based on the fact that we had, at least for the first quarter, we record, better working capital pattern than in the previous years.
Sure. Sorry, I think the line broke. This could be close to zero this time, is what you're saying?
Sorry, I did not hear you.
Sorry, the line actually broke for a little bit.
Yeah.
I think you said, H1 this time could be better. You said near zero. Is that what you said?
Yes.
Yeah. Thank you. My final question is, sorry to come back again on the raw material inflation guidance. If I understand it correctly, the previous guidance was somewhere around EUR 600 million-EUR 1.2 billion.
Mm-hmm.
It's somewhere around EUR 900 million at midpoint. Now you are saying this could be somewhere around EUR 400 million-EUR 900 million. As things stand now, you are seeing it more towards the lower end. Is that, have I understood this correctly?
Yeah, that's correct. Don't forget that although we can plan or anticipate the raw material inflation or the transportation cost relatively well because we have several months of inventories, there is some costs that might be more volatile, for example, energy prices.
Sure. If energy prices stay as it is now, we basically see the raw material inflation could be maybe somewhere around EUR 400 million-EUR 500 million below of what you are expecting in your guidance when you provided the full year results. Is that a fair conclusion?
Yeah. In fact, we lower our... First, it's not our guidance, it's the, let's say, the context of our guidance. First, we lower the overall inflators anticipation. As I said earlier, mostly due to transportation and raw material costs that are easing. Keeping in mind, as I said, that raw material costs, although they are, they will be easing, are still far above the 2019 level.
Thank you. That's very helpful.
Okay.
The next question is from Thomas Besson from Kepler Cheuvreux. Please go ahead.
Thank you very much. Good evening. It's Thomas from Kepler Cheuvreux. I have a couple of questions, please. I'd like to start with the tailwinds we have seen you get from the SR3 business from indexation. Could you discuss how long we should still expect to see such tailwinds and when it's going to, at the opposite, be a headwind for that business? Is that fair to think that it may happen as of H2 2023? That would be the first question. The second, is it possible to have a comment on the expected earnings seasonality in 2023? You have managed to well balance your earnings in previous years. Last year was a bit different.
Should we expect a kind of mirror of 2022 and 2023 with a stronger first half and a weaker second half, or do you think the two halves will be balanced? Lastly, I would like to give it a try. Is it possible to have any update on the status of your M&A plans today? Thank you.
Thank you, Thomas. Obviously, I will not answer to your last question.
I guess so.
... except if I had a concrete operation to share with you, but then this case we'll do a specific call. Coming back to your first question. Indexation, in all index business by the way, and not only in SR3, should probably have some tailwinds during the second half of the year. We should have also, there will be the reverse of the tailwind during the second half of the year, but we'll have the tailwinds from the input cost. Overall, it should be neutral. Regarding the earning seasonality, for the time being, that's our view. It should be pretty balanced between the two semester.
Don't forget that generally in our industry, we tend to have stronger H2 than H1 because of the volume, because of the seasonality of the business. We have very, generally very strong sales in between let's say August, starting August in North America till the month of November. So for the time being, our expectation is to have let's say balanced earnings in term of segment operating income between the two halves.
Thank you.
Thank you. You're welcome.
The next question is from Philipp Koenig from Goldman Sachs. Please go ahead.
Yeah. Good evening, guys, and thank you also for taking my question. The first one is, on the volume drop through, should we, you know, consider the negative volume that you're sort of predicting in your guidance, should we assume a normal drop-through of EUR 120 million-EUR 130 million per percentage point, or is it different this year, given sort of the capacity utilization may be a bit lower? Any color there would be helpful. The second question is just, you know, you've done now EUR 800 million of price-mix in the first quarter. As things stand today, you mentioned you're rather around EUR 400 million-EUR 500 million on the cost. You should obviously have more pricing in the coming quarters.
You know, last year you had around EUR 500 million price mix against inflation. Is it fair to say that, you know, as things stand today, the benefits of price against cost should rather be higher? Thanks very much.
Regarding the volume drop through, yes, we generally have a drop through. It depends from one year to another, but it's generally between EUR 110 million-EUR 130 million, depending of course of the, of the, of the basis of reference. Price mix was very strong in Q1. As I said, there will be some headwind in the second half with maybe some negative indexations on some businesses. Well, last year we have, as you said, a positive effect of EUR 500 million. We expect this effect to still be positive. Probably to at least to offset the, the volume, the negative volume effect. We started the year with a, with a strong negative volume effect.
It will, let's say be gradually, it will gradually improve on the year. We should see, let's say the two effect, compensating, but at the end of the day, our objective, first, our objective strategically is to retain the mix effect and of course, to manage, the price effect in order that we hedge our inflation.
Okay. The way you see it today, basically is that it should offset the inflation plus the negative contribution from the volume at least, from how it stands today. Is that correct?
It's what we try to achieve.
Okay. Thank you very much.
Thank you, Philipp.
The next question is from Ross MacDonald from Morgan Stanley. Please go ahead.
Hi there, Ross at Morgan Stanley. Thanks for taking my questions. First one's just on SR2 volumes. I'm just curious, obviously, that's quite a sharp slowdown in truck replacement demand. How confident are you that these truck volumes will inflect from these levels and the first quarter is the trough? Secondly, on non-tire sales, these grew 22% last year. It looks like they've decelerated to +15% in the first quarter. I know beyond tires is an area of focus for Michelin, so just like to understand if you see that as a slowdown or if that's the normal growth rate that we should be modeling moving forward. Final question, you mentioned that you're sticking with the CapEx guidance for 2023.
If volumes stay weak, how much room is there to ease off CapEx at this stage in the year, to help lock in the free cash flow guide? Thank you.
Regarding the U.S., the U.S. truck data was quite weak in March. Don't forget that we are speaking about selling figures, particularly for the replacement market. It is a segment that has been heavily penalized in 2022 by supply chain disruptions. As the supply has improved, what we are seeing basically is fleet and dealers reducing their inventory, reducing the safety inventory that they built during this tight supply chain environment. On the other end, we are still seeing very buoyant original equipment demand both in Europe and North America as, let's say, more and more demanding environmental standards are pushing fleets to look for, let's say, performance and particularly in the rolling resistance and in more efficient tires.
As our non-tire sales growth is concerned, we post 15% in Q1 2023, that is 15% above on top of the 22% growth in 2022. 2022, there was a partially price effect in this in this figures. It's obviously less the case in 2023. What we are seeing both in the fleet management, what we call machine-connected mobility and high-tech material is a very positive trend for the time being. As far as CapEx are concerned, we do not monitor CapEx as let's say an adjustment criteria. We are in an industry with let's say a long trend where we need to steadily invest in order on one side to maintain our equipment, our factories in a good shape.
The other side, to combine the growth in term of complexity, in term of product performance, and also to adapt our capacity regionally to the demand. That's why we have not considered any adjustment in CapEx. As on top of that, we are now, we have entered for the past few years in a period where we need also to invest in the decarbonization of our value chain, starting by our own operation. We know that we it will require some CapEx in the years to come.
That's fair. Thank you. Just, just so that I understand on the CapEx point, you know, I appreciate the maintenance CapEx is necessary, but you wouldn't, you wouldn't ease off on the CapEx if the volumes decline further from here? Thank you.
What we might do and is of course to adjust our capacity capital expenditures because we always have some marginal improvement marginal capacity increase in some region. Of course, depending on the volume trends, we might of course adjust that part. Don't forget that nearly one third of our CapEx is dedicated to maintaining our tools and equipment in a good shape. We have also part of CapEx, which is into decarbonization, ergonomy, productivity, digital manufacturing. On that area, we are not going to slow down our efforts.
That's clear. Thank you.
The last question is from Himanshu Agarwal from Jefferies. Please go ahead.
Hi, good evening. Thanks for taking my question. Himanshu from Jefferies. The first one I wanted to ask is on the dealer destocking. Can you tell us where we are in the destocking cycle, when should we expect the selling to improve? The second question, you have mentioned markets are in volume-wise, are trending at the lower end of your expectations. Are you still comfortable with the midpoint of your -4% to 0% volume guidance for the full year 2033? Thank you.
We expect, particularly in Europe and North America, destocking to continue during Q2. Don't forget that partially for the second segment, destocking is also, we are also seeing destocking in fleet, not only at distributors' premises. We expect destocking, yes, to continue. In some regions, we know that we are nearly back at normative level at the end of March. The picture might be different from one country or one region to another. Overall, we believe that there will still be some destocking during the second quarter. We generally communicate on a range at the beginning of the year, and generally our range is a 4-point range. Here we have a -4 to 0.
For the time being, we are comfortable with the midpoint. If we were expecting to land either at the upper part or the lower part of the range, I would have indicated you during the call.
Thank you.
I think it's the last question. Thank you very much for your attention. We are looking forward to meet you for our shareholders meeting on the 12th of May in Clermont-Ferrand, and, of course, at the end of July for the first half disclosures. Thank you very much, and I wish you all a good evening. Bye-bye.
Ladies and gentlemen, this concludes today's Michelin conference call. Thank you for your participation. You may now disconnect.